As the boom in the very large crude carrier (VLCC) market has continued this year on the back of the Middle East war, some are raising concerns about a supply glut in the tanker market. VLCC newbuilding orders have surged to a record high this year and prices have soared, as tanker rates jumped and demand from Middle Eastern oil-producing countries to secure large tankers increased.
In the shipbuilding and shipping industries, voices are expressing concern that the recent VLCC ordering boom resembles the boom about 20 years ago, when the market slumped after the 2008 financial crisis due to oversupply.
According to Maritime Strategies International (MSI) on the 28th, 177 VLCCs were contracted for new construction worldwide in the first half of this year. The total deadweight tonnage (DWT) of VLCCs ordered in the first half reached 54.5 million DWT, surpassing the previous annual record of 32.6 million DWT set in 2006.
VLCC newbuilding prices have exceeded $130 million per ship. This is the most expensive level since 2008, when prices topped $150 million per ship. The construction price for one 300,000 DWT-class VLCC that Hanwha Ocean won in April from Greek shipowner Kalouva Maritime was $130 million, about 4% higher than the $125 million order price in Aug. last year.
One reason for the surge in VLCC ordering demand and the sharp rise in prices this year is cited as the move by Middle Eastern oil-producing countries to secure their own vessels. In crude oil transactions, it is common for the buyer—refiners or traders—to arrange a tanker and load at the producer's port. Even when the seller, the oil-producing country, bore responsibility for the vessel, it was more common to charter from a shipping company than to own ships directly.
However, after the Middle East war broke out in Feb., operations in the Strait of Hormuz were all but paralyzed, prompting oil-producing countries to build their own VLCC fleets. As disruptions to crude transport grew, they moved to secure VLCCs directly as a way to keep exports going. VLCCs are the largest class of crude tankers and can carry about 2 million barrels of oil at a time.
In the shipbuilding and shipping industries, there are concerns that when the ships ordered this year are completed and delivered in 2028–2029, the tanker market could face oversupply. Given that vessels are typically delivered two to three years after a construction contract, when new VLCCs enter the market, supply could exceed demand, pushing rates down and reducing vessel profitability.
As of the end of the first half, the VLCC order backlog exceeds 310 ships. According to global shipbroker BRS, 60 ships are scheduled for delivery in 2027, 127 in 2028, and 125 in 2029 and beyond. The ratio of VLCC orders on hand to the currently operating VLCC fleet size has jumped to 35%.
MSI analyzed, "About 83% of VLCCs ordered in the first half of this year are scheduled for delivery in 2028 and 2029, which could place a heavy burden on the supply-demand balance in the VLCC market going forward."
As the VLCC order backlog has risen to the highest level since 2008, concerns are emerging about a supply glut similar to that period. Previously, from 2004 to 2008, expectations of increased crude flows driven by rising crude imports in emerging economies such as China and India led to a sharp increase in VLCC orders. In particular, in 2008, about 100 VLCCs were ordered from January to August, peaking at nearly three times the annual order volume in 2007.
However, when the financial crisis erupted in the second half of 2008, market sentiment shifted rapidly. As ships ordered during the boom began to be delivered from 2009, weakening demand due to the economic slowdown coincided with an increase in vessel supply, intensifying oversupply pressure. From 2011 to 2013, new VLCC orders plunged.
George Economou, founder of Greek shipping company TMS Group, said at an international shipping exhibition held in Greece in Apr., "The current tanker boom is somewhat better than the 2004–2008 tanker market boom, but if this situation continues, it will have a negative impact on the tanker industry."
There is also a counterargument that today's situation is different from 2008. Global shipbroker Braemar said, "The recent surge in tanker orders, especially VLCCs, is indeed a concern, but considering the replacement of aging vessels and demand for ships using eco-friendly fuels, even if the intake of new vessels increases, the overall fleet growth will remain manageable."